Japan Heads for GDP Contraction as South Korea Weakens: Economy

Toyota Motor Corp., Nissan Motor Co. and Honda Motor Co. reported this week that August production fell in China after anti-Japanese protests flared in the world’s largest vehicle market. Photographer: Kiyoshi Ota/Bloomberg

Sept. 28 (Bloomberg) -- Japanese and South Korean
industrial production fell more than economists estimated last
month as slowdowns in China and Europe weighed on exports,
building the case for more monetary easing.

Japan’s output fell 1.3 percent from July, the biggest
decline in three months, a Trade Ministry report showed in Tokyo
today. South Korean production slid 0.7 percent, partly on a
strike at Hyundai Motor Co.

An increasing risk that Japan’s economy will shrink this
quarter and the failure of central bank loosening to dislodge
deflation may increase pressure for officials to ease at either
of two meetings next month. Today’s data add to China’s weakest
industrial production growth in more than two years in
highlighting the failure of policy support to reverse a slowdown
across Asia.

“I’m convinced we’ll see a contraction in Japan’s GDP this
quarter because consumption, exports and private investment are
falling,” said Masamichi Adachi, a senior economist at JPMorgan
Securities in Tokyo and a former central bank official. “Prices
in Japan are falling because the economy is weak.”

The Nikkei 225 Index fell 0.7 percent as of 1:20 p.m. in
Tokyo. The MSCI Asia Pacific Index of stocks was up 0.2 percent
as investors weighed threats to the region’s growth against
prospects for more stimulus.

A report due tomorrow from HSBC Holdings Plc and Markit
Economics may indicate that Chinese manufacturing contracted for
an 11th month in September. Baoshan Iron & Steel Co., China’s
largest listed steelmaker, said this week it suspended
production at a plant after demand fell for slabs used in ships
and bridges.

Cutting Rates

Economists had expected declines of 0.5 percent in Japan’s
output and 0.4 percent in South Korea’s, according to the median
forecasts in surveys by Bloomberg News.

South Korea will need to cut interest rates again next
month to avoid rapid gains in the won as a result of easing
elsewhere, said Kim Hyeon Wook, an economist at SK Research
Institute and a former adviser to the Bank of Korea’s monetary
policy committee. Kim said the Hyundai strike affected output
and a slowdown in car exports will be “bad for Korea.”

Japan’s consumer prices excluding fresh food fell 0.3
percent in August from a year earlier, matching the steepest
decline in 16 months, another report showed today. The nation’s
jobless rate slid 0.1 percentage point to 4.2 percent as more
people stopped seeking jobs. Retail sales rose 1.8 percent from
a year earlier.

China, Europe

“Asian exports and production are weakening due to
slowdowns in China and Europe,” said Glenn Levine, a senior
economist at Moody’s Analytics in Sydney. “Today’s data make it
more likely that Japan’s economy will contract this quarter.”

JPMorgan, Barclays Securities Japan and BNP Paribas SA
expect a contraction in Japan after growth slowed to a 0.7
percent annual pace in the second quarter. Challenges span
political tensions with China, the fading effects of car
subsidies and strength in the yen. The Japanese currency traded
at 77.55 per dollar as of 1:17 p.m. in Tokyo, near the seven-month high of 77.13 touched on Sept. 13.

Toyota Motor Corp., Nissan Motor Co. and Honda Motor Co.
reported this week that August production fell in China after
anti-Japanese protests flared in the world’s largest vehicle
market. Toyota also said this week it will adjust production at
a plant in Kyushu, southwestern Japan.

Japan’s trade ministry today cut its assessment of
industrial output for the first time since June and said that it
was in a weakening trend. Finance Minister Jun Azumi said that
export demand is very unstable.

Carbon Tax

The Japan Business Federation, known as Keidanren, says
that a planned carbon tax will add to energy costs and further
slow economic growth. The levy, aimed at curbing greenhouse
gases, will start Oct. 1 at 289 yen ($3.73) a metric ton of
emissions.

Signs that a global slowdown is undermining a Japanese
recovery prompted the central bank to unexpectedly expand its
asset-purchase fund last week. Bank of Japan Governor Masaaki
Shirakawa and his colleagues gather to set policy twice next
month, on Oct. 4-5 and Oct. 30, with Deputy Governor Hirohide
Yamaguchi saying this week that the bank will take “bold
steps” if necessary.

Around the world, France will today give a final reading
for second-quarter GDP, while Germany will report on retail
sales. Inflation data will be released for the euro region and
Italy. In Canada, a report may show the nation’s economy grew
0.1 percent in July from the previous month.

U.S. data may show that personal spending climbed in August
after a pickup in automobile purchases and increased in gasoline
prices, according to a Bloomberg survey. The Commerce
Department’s report also may show the slowest gain in incomes in
four months as the labor market struggled.